Tuesday, February 15, 2011


     Tonight Feburary 15th,2011 President Obama will unveil his budget for the federal government for the fiscal year 2012. The budget will be around $3.73 trillion with a deficit of approximately $1.1 trillionThis deficit will be about 500 billion less that the $1.6 trillion for 2011.However as good as this looks it does not tell the true story.,but we will get into that in a few moments.Now these figures are truely astounding.The national debt for the fiscal year 2010 is $14 trillion dollars. Now before we go any futher ,it might be a good idea if with spelled out excatly what each of the following terms mean
                                  1)Budget-comprises total expenditures and the total receipts of the federal government
                                 2)Deficit- total expenditures less total receipts(such as income taxes)received.
                                 3)National Debt-acculmation of every year's deficit since 1789 less all accumulated surpluses.(since 1789 we have had only 13 years with surpluses)
                                4)Debt intrest payments-amount paid to investors who have bought treasury bill and bonds.
     Ok,now that we have the terms defined we can proceed to the discussion at hand.Over the next few days and weeks the budget deficit,national debt and it's intrest payments will be front and center in the public consciousness.Events around the world will take a back seat to the discussion about our fiscal health,unless some government around the world falls in a revolution.Now the argument will revolve around what is necessary spending,how much and were spending should be cut.Now let us look at the supposed drop in the deficit from last year.This drop consists of $90 billion in cuts and around $410 billion in new taxes.Smoke and mirrors,if you don't look to closely it looks great.Another trick of smoke and mirrors is the statement that some sort of cut will reduce the deficit over ten years.Did you spot the trick,No,well here it is. When they say that cutting the deficit this year by $so much  and thus save this amount over the next decade,they assume that the amount saved this year will automaticly be added to the budget the following year.Therefore we can say we won't add that amount to the federal budget and thus reduce the deficit by that much.
      Smoke and mirrors,that all the politicans are offering us. Now that the question is can we resolve the problem of the national debt with just spending cuts without raising taxes.What if the raise in taxes is targeted at paying down the debt?Would that be acceptable?How about the President Obama's pledge to cut the deficit by half by the end of his first term.Did you spot the trick?Actually there were two.The first is that the president is saying no longer will we operate on $1.6 trillion dollar deficit but only on $800 billion deficit.Now that is progress isn't it.The second trick is that the president is saying that I will have a second term and will continue my austerity program.Smoke and Mirrors,that's all they seem to be offering us. Lets look at our reflection in the fun houses mirror.See the reflection shows us as skinny,well great.I no longer have to worry about my diet,after all my reflection is skinny,just look at it.
    If nothing catches my eye tonight,well look at ways in which he deficit can be tackled without all the smoke and mirrors. But as to what answers to the deficit the politicians offer us,do you believe them? I know what I believe but as usual what do you believe?


  1. Ah, budgets, deficit and National Debt. I remember you well.

    Where to start?

    This is my view of what happened.

    We went through a period of world expansion, when people were buying more. This meant that money seemed plentiful and every investment returned good profits. So the inevitable happened. Greed stepped in. Investors turned to riskier and riskier investments because they promised greater returns. Inexperienced individuals were tempted to forsake solid investments and move into the world of risk as it promised them a greater return and therefore a more comfortable future. Here in Britain, this led to a lot of people buying houses to rent out, relying on the rent to cover the mortgage payments, taxes, etc..
    Since there are more people looking for houses than houses for them to live in, rents soared, more people bought and the future looked rosy.
    Then the inevitable happened, someone, somewhere needed cash not capital. They called in a loan and the cascade began. Loan after loan was called in as to pay a loan off, the debtor turned to his creditors for payment. Houses were dumped back onto the market which quickly flooded and prices crashed. Capital would no longer cover debts as prices fell and bankruptcies began. Businesses, small and large, went into liquidation of administration. Asset strippers had a field day. Unemployment and pay cuts became rife. Less money coming in meant less ability to pay debts and the resultant domino effect ricochetted around the world. Major financial industries such as banks had also fallen into the trap and suddenly there was not enough money in the banks to cover the amount people had paid in. Banks fell or came close to falling and were propped up by governments who had to get the money from somewhere......
    So now Governments are in the same position as the individual in the street who has overspent on his credit card. No-one will lend any more money and the money needed to just service the debt means there is no money for normal daily expenses which means that has to be borrowed, compounding the debt.
    And there are no 'Individual Voluntary Agreements' slashing debts by up to 75% for governments. Bankruptcy in unthinkable.
    That leaves only one solution. Not just cutting the deficit but actually reversing it and paying some of this mountainous debt off.
    Look, I am no economist and I have not got all the facts here but...
    We can't sell more to people who have no money. Sure, we can raise taxes but, with unemployment so high, who will pay them? Those with enough money for the taxes they pay to make a difference will move it into tax free accounts abroad.
    Greed is still here.
    Spending cuts seem the only solution to me.
    The blocker is still greed. This is going to hurt everyone, even those who don't deserve it and really need what they are losing. Can that be avoided? Yes, if people are honest about what they need as opposed to what they don't want to lose. I don't 'need' high definition satellite television. I don't 'need' this fast broadband I am using. Kids don't 'need' the latest gadgets or those expensive fashionable trainers.

  2. Continuing because my comment was too long.....

    I have no children and don't intend to have any. Why should I care about the future of this country?
    The answer for me is, I don't know how long I am going to be here. I don't know if I will live to retire or live to be one hundred. I do know I want to be able to keep warm, eat, get medical help, etc. however long I am here. I will give up some comfort now to maintain that security for my future, Also, this is MY country. I want it to go on being a good place.
    I hope that politicians have got the honesty and dedication to look at the future of their country not at their own short term comfort. Have decisions have to be made and stuck to. Re-election as a goal has to be tempered by the knowledge that budgetary bribery can not continue.
    Similarly, I hope that electors will start thinking of 'what do we get' instead of 'what do I get' and realise that national budgets are like personal budgets, to be able to spend more, we must first find the money from somewhere. Tax bonuses and other benefits are great but who is paying for them?

  3. I believe as you do...It is all smoke and mirrors. I like your description of the fun house mirror...I may use that sometime in my writing. Thanks for the inspiration.

  4. Penny what a great comment,I can always count on you have well reason and coherent thoughts.

  5. Lorely ,thank you for the comments,I am glad that at least some thing I have written is inspiring.

  6. thanks Richard. I enjoy responding to your thinking. My first stop in the morning.